2019 (4) TMI 693 - AT - Income Tax

Penalty u/s 271(l)(c) - Undisclosed investment in purchase of property - assessee accepted total addition in his hand - CIT(A) was of the opinion that only 1/3rd of the above unaccounted cost of land was relating to the assessee and accordingly, he sustained the penalty 1/3 penalty - HELD THAT - As seen that in the assessment order, undisclosed investment of ₹ 81.60 lakhs was considered and it is not proper on the part of the CIT(A) to consider only 1/3rd of the amount of ₹ 81.60 lakhs for the levy of penalty. Accordingly, we vacate the findings of the CIT(A) and restore the issue back to his file to consider the entire undisclosed amount of ₹ 81.60 lakhs. It is admitted that these two persons, Shri Davis and Shri Pavunny have not made any payment towards the purchase of the said property and also it was on record that the assessee had accepted the addition of the entire amount in his own hands. Accordingly, we remit this issue to the file of the CIT(A) for fresh consideration and decide the issue in accordance with law after giving opportunity of hearing to the assessee. This ground of appeal of the Revenue is partly allowed for statistical purposes.

Issues Involved:
1. Addition of ?81.60 lakhs as undisclosed investment.
2. Penalty proceedings under Section 271(1)(c) of the Income Tax Act.
3. Assessment of whether the investment in property was made by the assessee alone or along with two other individuals.
4. Validity of the seized document as evidence.
5. Appeal against the penalty imposed by the Assessing Officer.

Detailed Analysis:

1. Addition of ?81.60 Lakhs as Undisclosed Investment:
The case revolves around the addition of ?81.60 lakhs to the assessee's income, which was deemed as undisclosed investment in a property. The assessee firm, engaged in timber trading, had a search conducted under Section 132 of the Income Tax Act on 23/10/2008. A notice under Section 153A(a) was issued, and the assessee filed a return declaring an income of ?1,28,32,920/-. However, the assessment was completed under Section 143(3) read with Section 153A, and the total income was assessed at ?2,15,59,239/-, including the addition of ?81.60 lakhs for the investment in land at Chembukavu, Thrissur. The Assessing Officer (AO) concluded that the investment was made out of undisclosed income based on a seized document and the statement of the managing partner, who admitted to the actual cost being ?99.90 lakhs.

2. Penalty Proceedings under Section 271(1)(c):
Penalty proceedings were initiated under Section 271(1)(c) for concealment of income. The assessee's appeal to the CIT(A) confirmed the addition, and the ITAT also agreed with the findings. However, the ITAT observed that the claim about two other individuals contributing to the investment was not verified by the lower authorities and remanded the matter to the AO for further examination.

3. Assessment of Investment by Other Individuals:
Upon remand, the AO made inquiries with the two individuals, Shri A.A. Davis and Shri P.T. Pavunny, who denied any investment in the property. The assessee submitted that these individuals had indeed contributed, but lacked documentary proof. To avoid prolonged litigation, the assessee agreed to settle the issue, which led the AO to retain the addition of ?81.60 lakhs and initiate penalty proceedings.

4. Validity of the Seized Document as Evidence:
The AO relied on the seized document and the statement of the managing partner, which indicated an actual payment of ?99.90 lakhs for the property. The AO referred to Section 292C of the Income Tax Act, which presumes the contents of seized documents to be true unless rebutted. The AO noted that the assessee had not provided a convincing explanation and had retracted the admission after 26 months, which was deemed an afterthought. The CIT(A) and ITAT upheld the evidentiary value of the seized document.

5. Appeal Against the Penalty Imposed:
The CIT(A) observed that assessment and penalty proceedings are separate. The addition was based on a seized document indicating payments by three individuals. The CIT(A) noted that the failure of the AO to gather evidence against the other two individuals should not penalize the assessee alone. Consequently, the CIT(A) reduced the penalty to 1/3rd of the total amount, confirming a penalty of ?10 lakhs and deleting ?20 lakhs.

The ITAT, however, found it improper for the CIT(A) to consider only 1/3rd of the amount for penalty purposes when the entire undisclosed investment was ?81.60 lakhs. The ITAT vacated the CIT(A)'s findings and remanded the issue back to the CIT(A) for fresh consideration, emphasizing that the assessee had accepted the addition of the entire amount.

Conclusion:
The appeal of the Revenue was partly allowed for statistical purposes, and the Cross Objection filed by the assessee was dismissed as infructuous. The case was remanded to the CIT(A) for fresh consideration of the entire undisclosed amount of ?81.60 lakhs and to decide the issue in accordance with the law.

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